Stairs and Elevators

Trees don’t grow to the moon. The stock market makes you feel like you’re climbing stairs when it’s going up and like you’re riding an elevator when it’s going down. These are but a few of the sayings that retired stock broker Keith Knight of Santa Rosa Beach can be heard to say from his 48 years on Wall Street. He not only was a stockbroker but went on to be Senior Vice President for several major investment firms.

My own career in financial services started by working on the phones at a call center of a major U.S. mutual fund and brokerage firm. On the morning of October 19, 1987, I was at home watching the old FNN and witnessing the elevator going down fast. My shift started at 4:30 in the afternoons (we were open 24/7)so I decided to call my supervisor to see if he wanted me to come in earlier as I was sure they were experiencing heavy call volumes. He said I should come on in now and be prepared to work a lot of overtime. And overtime there was. The firm offered double pay, not just time and a half, for overtime. And it was unlimited. I took all I could and worked the next 20 days, 12 hours a day, in a row. I not only earned good money as a result of the crash of ’87 but more importantly, I learned a lot.

The market had an amazing climb up the stairs in 1987 and an amazing and fast fall down the elevator by October. Caller after caller, (and we had callers on hold nonstop) wanted to redeem their shares or investments. We offered CDs, money markets, treasuries as alternatives, but these investors were shaken and just wanted out. We would try and encourage the callers with the things we were told and had learned. Not to give up hope at the worst possible time and sell out. Not to try and time the market but rather spend time in the market. And we did hear from callers those four (as some would say most expensive) words of investing: This time is different.

After the market drop, and more volatility followed, things got very quiet. There were no longer hold times and the time between calls seemed longer and longer. The investors had gone quiet or in many cases they had just gone. There was calm after the storm but this was too quiet. Several months later, a bit in to the new year, many firms, including mine, could no longer justify staffing levels and the layoffs began. How could things have changed so quickly? I was experiencing the birth of my first child on the day those layoffs happened and thought I would be a new father without a job. Thankfully, I was spared. And, once again, I learned so much more.

After finishing the year at a 5.2% return in 1987 the S&P 500 gained 16.8% in 1988 and an even better 31.5% in 1989. I so hoped that those that had retreated from the markets back in late ‘87 didn’t return too late in this up cycle when things seemed to be climbing endlessly again to just see the market fall in 1990 and finishing down a negative 3.1%. The fact is, markets do experience a significant retreat on average about every four years. And even though the long term average of the S&P 500 is over 9%, it is rarely smooth. To potentially experience that average, investors have seen they have to spend time in the market. Ideally you want to ride out the retreats in values and be invested when the market has a strong year. Channeling Keith Knight again, we hear him give his opinion that your money won’t work any harder than in the stock market. Money will work harder in American industry than anywhere else.

What investors have experienced over the years is that the things that can make stocks rise are similar to the things that make them fall. Earnings, interest rates, inflation, the value of the dollar. When stocks are high, earnings have had to keep up, to go up, or stocks have come down. Interest rates are an indicator of the money supply. Typically, looser rates mean more dollars are out there and that can be good for stocks. As the money supply is tightened, interest rates rise and there are fewer dollars available to put into assets, such as stocks. Inflation cuts in to earnings and a company’s earnings should outpace inflation. Wage growth is good for raising one’s standard of living but also can drive inflation. The value of the dollar will always impact earnings. Earnings over time have been seen to be a main driver of market values.

At the end of the day investors are reminded to stay the course in line with their goals, time frame and risk tolerance. And, to remember as Keith often says, money never sleeps!
Contact or visit with your advisor today to start or continue the conversation about investing in the markets over the long term.

Maurice Stouse is a Financial Advisor with First Florida Wealth Group/Raymond James and he resides in Grayton Beach. He has been in financial services for over 30 years. His office is located at First Florida Bank,2000 98 Palms Blvd, Destin, FL 32451. Phone 850.654.8124. Raymond James advisors do not offer tax advice. Please see your tax professionals. Email: Maurice.stouse@raymondjames.com.

Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC, and are not insured by bank insurance, the FDIC or any other government agency, are not deposits or obligations of the bank, are not guaranteed by the bank, and are subject to risks, including the possible loss of principal. Investment Advisory Services are offered through Raymond James Financial Services Advisors, Inc. First Florida Wealth Group and First Florida Bank are not registered broker/dealers and are independent of Raymond James Financial Services.

Views expressed are the current opinion of the author and are subject to change without notice. Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security. Past performance is not indicative of future results. There is no assurance these trends will continue or that forecasts will occur. Investing always involves risks and you may incur a profit or a loss. No investment strategy can guarantee success. The S&P 500 is an unmanaged index of 500 widely held stocks. Keep in mind that indexes are unmanaged and individuals cannot invest directly in the index. Index performance does not include transaction costs and other fees, which will affect the actual investment performance. Individual investor results will vary.

Holding stocks for the long term does not insure a profitable outcome.